Pushing for a little more equality

Thomas Piketty proposes taxes to alleviate inequality in the Middle East

Titled Capital in the 21st Century, the book by French economic historian Thomas Piketty is a versatile and useful tome.

Author Thomas Piketty came to pay his inaugural visit to Beirut and a repeat visit to Cairo last month as part of a promotional tour for his book’s Arabic translation, available in soft cover but with the same distinctive look as the English-language hardcover edition that became such a surprise bestseller.

He noted in numerous presentations and interviews during his tour (as he had said already in interviews in previous years) that the Middle East is probably the world region with the greatest economic inequality and that the deficiencies in data collection and verification make this region difficult to assess from the point of view of an economic historian.

Executive sat down with Thomas Piketty on the occasion of his visit – which unexpectedly entailed three lectures in a single afternoon. Talk about what Nick Taleb – who, like Piketty, benefits in irrational terms from scalability of social matters and, presumably, book royalties – calls Extremistan, where “inequalities are such that one single observation can disproportionately impact the aggregate”.

E Including the original French, how many languages has Capital in the 21st Century been published in?

I think it is 45 languages.

E So Arabic is pretty much the last?

Among the major languages, it is the last. There are a few small languages [scheduled to be translated into], but if you take the main ones, it is the last language.

E How many copies of the book are in circulation?

We have about 2.5 million.

E When the American translation became a bestseller there was some speculation that few buyers read through the book and that many readers made it only to page five or ten. Where do you see the ratio?

I think most people read a lot; they read more than five, ten or twenty pages. Of course it takes time to read this book and it is okay for me if people read the introduction. There is a lot in the introduction, 50 or 60 pages, and then they read part one and stop and come back in one year. I have no problem with this. It is the kind of book that you can read that way.

E The American edition was copyrighted to the president and fellows at Harvard University. Is there a similar copyright to the Arabic edition that represents a collaboration with an academic institution?

I don’t think that the Arabic publisher is tied to any academic institution. What happened is that I sold the English rights to Harvard University Press but for all other languages they are dealt with by [Editions] du Seuil, which is my French publisher.

E Are royalties going to you in France then for all the other editions?

Exactly.

E Did you make any changes or updates in the Arabic edition?

No (shakes head).

E So statements like the one (on page 14 in the American edition) that people might by 2050 be paying rent to the emir of Qatar, which might not be seen as very friendly to the Emir, are still in there?

Yes, they are still in there.

E What relevance do you see in the Arabic edition and what is your expectation?

Each region in the world has its own unique history of inequality and the Middle East, as I tried to say in my presentation, is probably the most unequal region in the world. Even though it doesn’t have this legacy of extreme inequality, like apartheid in South Africa or slavery in Brazil or the south of the United States of America, the oil and the very peculiar system of states that were put in place in the Middle East in the 20th century have in the end created a level of inequality and concentration of resources which is probably the most extreme that we have ever seen in history. And in my opinion it is pretty much related to the instability and to the difficulties in the region with the state formation process.

E Some people are still blaming this on Sykes-Picot which was signed 100 years ago.

Look, there was no easy solution to Sykes-Picot and we should forget about Mr. Sykes and Mr. Picot and look to the future. But it is clear that the system of frontiers in this region is probably going to change in the future. The best we can hope for is to have some peaceful regional integration with some kind of sharing of resources. I am not saying we should have full sharing of resources. Even in the European Union, Germany and France keep their tax revenues, but they share a little bit through regional funds, through the rule of law and the European Central Bank. This is not perfect but it is better than having merely interstate relations where you have to beg. Right now we have a situation where we have a sort of beggar relationship where Egypt has to beg Qatar or Saudi Arabia. This is not good.

E Do you want to contribute with your book to an academic debate or a debate involving politicians?

You don’t write books for politicians. You write books for everybody who reads books, for normal people and normal citizens. I believe in the power of ideas and the power of books, because politicians very often just follow what they feel is the dominant public opinion at the time. I think politicians are very often the slaves of public opinion. So I think it is much more interesting to try to influence the development of public opinion through books and other media interventions, than to have breakfast with politicians.

E Many people I contacted wanted to know if you see the data paucity in the Middle East as a major barrier and in that sense if you regard your book as a call for more data transparency and better data collection in Middle Eastern countries?

The lack of data transparency in the Middle East is at the same time a symptom and a catalyst of the difficulties with the state formation process. It is difficult to build trust in public institutions and in the tax system if you dissimulate some of the tax data. I think it is not good that you have official income taxes in pretty much every Middle Eastern country but it is the only region in the world where you don’t have access to data in any country. That is a symptom which will always create some suspicion that the system will not be administered in a fair and equitable manner. To me, this is a really important issue.

E Sometimes it seems that inequality in this region is accepted more than elsewhere. Is that in your view an obstacle to development?

I would not talk of acceptance of inequality. When the youth are demonstrating in Egypt and Tunisia, they are demonstrating against the fact that they feel that they don’t get the kind of jobs and the kind of future that they deserve considering the efforts they have put in, particularly as compared with other youth in the West but also in comparison with all these oil countries where some people have so much money that they don’t know what to do with it. I think this is part of the feeling of injustice.

[pullquote]I prefer a global wealth tax, a tax that must be on all forms of wealth, such as financial assets and real estate[/pullquote]

E But didn’t the eruption of complaints over economic injustice that was part of the Arab Spring soon change into something else? You don’t see an Occupy Wall Street or an anti-IMF gathering for ideological reasons here. That is why I am asking if inequality is still more accepted in countries of this region as opposed to other regions?

Well before you can solve inequality you need to make progress in the process of state formation and institution building. Democracy is always a miracle; the fact that in a country of 90 million people like Egypt we decide on government by a majority decision and accept their decision even if we disagree. We have seen this in Egypt after the 2012 elections, which was for the first time a highly contested election, but then one year later the democratic process was interrupted. I think this was a very sad end to this but it is not final. There will be other attempts. We know from experience in other parts of the world that this kind of process can take a long time. When we used the electoral process in Europe for the first time for deciding which government we should have, in Germany it didn’t work so well. Then finally it worked. We should be realistic about this. It cannot be done in one year.

E You wrote in your book several times that you see patrimonial capitalism on the rise and that the recession of 2008 was in your view the first crisis of patrimonial capitalism in the 21st century. How do you define patrimonial capitalism and is it in your view still a problem?

I define it in comparison to previous periods particularly in European history. We had a first stage of patrimonial society in the 19th century and until World War I, with a very high level of assets and wealth relative to income. Then there was a complete change with the World War and it took a very long time – ideologically, politically and economically – to recover from this. What I mean by the return of patrimonial capitalism today is that we have for instance the market value of real estate and housing, of stock market assets which is now back to very high levels relative to one year of average wages or average income. Not everything is bad about this. We should not be nostalgic about the 1950s where everything was [socialized]. This was not just a positive policy compromise with wealth owners. It was also negative and [accompanied with] many disruptions. The return of patrimonial capitalism is something which is almost unavoidable but we need to regulate it and need to develop ways to prevent financial crises and housing bubbles and give access to property to broader segments of the population. This is a long-run evolution.

E So patrimonial capitalism for you is not concentration of capital in the hand of a predefined class?

Not necessarily. I think there are different ways to regulate patrimonial capitalism, so even if we are still [living] in patrimonial capitalism, there are different forms of patrimonial capitalism and I want to push toward a more equitable [version].

E Would you favor a land value tax to balance the inequalities of ownership in real estate?

I prefer a global wealth tax, a tax that must be on all forms of wealth, such as financial assets and real estate. It is very difficult to separate the land value from the real estate value from the value of financial assets of a company which are then used to buy real estate assets. I think the concept of a land tax doesn’t work. I want a tax on global wealth.

E A tax on global wealth demands transparency on numbers, as you also stated in your book. But in this region, where transparency on numbers is very low, doesn’t this look to be a more than utopian concept when you can’t obtain the data on even the basic level such as tax records?

It is difficult [to remedy the lack of data] but even in the Middle East you have systems of property tax, which sometimes exist, and you have systems of inheritance tax, which sometimes exist or existed in the past in Egypt until the 1970s. We have to improve the system but don’t have to start from zero.

E The notion of equality looks fanciful when we consider that we’ve never had equality in history. Is it like the virgin birth, which some faiths determined as a dogma but which is not of practical applicability?

The problem is not to have full equality but rather to moderate inequality.

One Comment;

Pikettys comment regarding Land Taxes shows a breathtaking level of ignorance. Given the vast amount of data we have regarding selling prices and rents, it’s very easy to compare like for like building types in different locations to get the underlying site values. To a large extent this isn’t even important, as with the correct tax structure the incidence can be made to only fall on Land. For example because the Council Tax in the UK is fixed into bands, it acts as a lump sum tax attached to a title deed rather than an individual or firm.

The point is because land by value is more highly concentrated than income or capital, than any attempt to shift taxes way from produced factors on to land will reduce inequality. An imperfect Land Tax is still going to do the job better than a flat property tax, which is better than taxing sales or income.

And because a LVT is optimally efficient we not only get a more equal share of the cake, but the cake gets bigger too. A win-win.

I suspect Piketty really interested that the State owns a large part of what people have earned, rather than reducing inequality. That is, he is first and foremost a control freak.

So, of course he doesn’t like Land Taxes, as they produce fair property rights that not only reduces inequality, but turns our neo-feudal economic system into a true free market Capitalist one. Leading to a vastly shrunken State apparatus.